PETALING JAYA: The proposed carbon tax is likely to be passed through to consumers under the incentive-based regulation (IBR) framework, in line with global practice, resulting in limited direct earnings impact on power producers, Apex Securities says.
Malaysia plans to introduce a carbon tax in 2026 as part of its broader strategy to reduce greenhouse gas emissions and transition toward a low-carbon economy. The proposed mechanism is expected to initially apply to iron, steel and energy sectors.
Last week, Bloomberg reported that Malaysia is considering introducing a carbon tax at an initial rate of RM15 per tonne of CO₂ equivalent (tCO₂e) as part of its efforts to curb national emissions.
However, Finance Minister II Datuk Seri Amir Hamzah Azizan subsequently clarified that the final rate has yet to be determined.
Under a no-pass-through scenario, the research firm estimates financial year 2026 (FY26) earnings could drop by around 10% for Tenaga Nasional Bhd
(TNB), while Malakoff Corp Bhd would face a significant earnings impact.
“At 19.06 million tCO₂e (FY24 level) and RM15/tCO₂e, the carbon tax would erase nearly all profits, implying an 81% earnings impact for FY26.” Apex Securities said in a note to clients.
“Encouragingly, under the IBR framework, the carbon tax should be fully passed through to consumers, consistent with global practice. This implies minimal direct earnings impact for regulated utilities,” Apex Securities said.
Within the power sector, the research firm said that coal and natural gas plants are the dominant sources of Scope 1 emissions, and would, therefore, bear the brunt of any carbon tax implementation.
With the proposed carbon tax seen to be earnings-neutral in practice, Apex Securities said it was maintaining an “overweight” stance on the power and utilities sector.
Malaysia’s carbon tax framework resembles Singapore’s carbon pricing model, where the tax is levied at a fixed rate per tonne of CO₂ equivalent on Scope 1 emissions once a facility exceeds a defined threshold.
For reference, Singapore’s carbon tax, implemented on Jan 1, 2019 at S$5/tCO₂e for facilities emitting 25,000 tCO₂e equivalent or more per year. The rate was raised to S$25 in 2024-2025, and will increase further to S$45 in 2026-2027 and S$50-S$80 by 2030.
Indonesia and Vietnam are also actively developing frameworks for implementation. An analyst said these parallel efforts highlight the growing momentum across the region and position Malaysia as part of a broader shift in South-East Asia toward mandatory carbon pricing.
Analysts noted that early pioneers such as Finland and Sweden introduced carbon taxes over three decades ago and have since refined their systems, embedding carbon pricing into the wider fiscal frameworks, welfare policies, and climate.
Meanwhile, the European Union Carbon Border Adjustment Mechanism (CBAM), which is set to take full effect in 2026, will impose costs on carbon-intensive exports.
Analysts said Malaysian producers risk significant price pressures if no domestic carbon price is in place. Crucially, CBAM allows deductions for carbon taxes already paid in the country of origin.
By implementing a domestic carbon tax, Hong Leong Investment Bank Research said that Malaysia can generate revenue for decarbonisation efforts and protect the competitiveness of its exports in the EU market.
